5 crucial things to know when finding private label manufacturers

The first thing that has to be completed when launching your private label enterprise is identifying the products you intend to sell. Then, it is crucial that you find private label manufacturers who have the competence to manufacture them. The process of private labeling is quite straightforward, in the sense that we simply put a private label on a generic product that is selling well. However, there are a number of steps that can determine whether selling private label products is a success or a failure. Sometimes it can be easy to underestimate the skill and time involved in private label manufacturing, so many start the venture without the necessary preparation. Selling private label products is not as simple as it sounds.

Following the feedback of our readers, this article was updated on July 2017 as the complete guide for those who are about to find private label manufacturers to manufacture their first private label product.

In this article, we will investigate how to generate private label product ideas, how to find out the predicted trajectory of the product’s sales, and in what country/countries can the product be manufactured; it will also give tips on how to outline a list of negotiation points to exchange with your chosen manufacturer and explore five different ways to find private label manufacturers. Many of these key points will apply not only to the selling of private label products, but to all types of online businesses—be it personal websites or online marketplaces, such as Amazon or eBay.

1. How to generate private label product ideas

First off, follow your passion, what’s interesting to you? Tech products, home décor, gardening, cooking, knitting, games, fashion, etc. If you don’t have passion about what you are selling, how can you effectively convince people to buy your product if you do not believe in it? Why are you drawn to creating your own private label products?

Follow your expertise, what you are good at? If you don’t know much about your products, people will cast doubt on your product quality.

Check the websites or forums where people talking about the product category you love and gain insight on what makes it special

Here are a few generating ideas (Let’s use beauty products as an example):

a. Reddit:

Try to type beauty products in the search bar

The most popular items in terms of beauty products seems to be organic materials with a focus on women’s makeup

b. Pinterest:

Check which products got the most repinned when you search ‘beauty products’

c. Online market places:

Japanese and Korean pop culture and products are popular around the world: Hello Kitty, Uniqlo, Shiseido, Muji, Samsung, Hyundai. Even the most viewed song Gangnam Style on YouTube is from Korea, why not take a look on Japanese Rakuten and Korean Gmarket.

d. Product trend sites:

2. How to figure out how the product will sell well on market

a. Best private label product criteria for selling online:

Retail price of private label products should be between $10 and $50 (due to impulse purchasing)

Keep the selling mass lightweight and durable (max. 2.5kg including packaging, not easy to break during shipment)

Make it easily customizable (no need for complicated tooling or molds)

Product compliances (comply with the norms and regulations of your designated country)

Ensure there are no intellectual property right issues on your chosen private label products. Guarantee the product or the component of the product is not patented. If you sell on Amazon, your private label products can be blocked or seller account can be suspended from a single complaint of an intellectual property violation, even if you have the trademark to the name, label and logo. The intellectual property infringement can include trademark, copright or patent

b. Popularity and profitability

Make good use of Amazon platform together with some tools to gauge the popularity and profitabilityof the product you found. You need to know some hard facts such as the sales volume and the search volume of your product to help predict how it will sell.

MerchantWords is a tool to know the search volume (demand) of your product. A minimum monthly search volume of 100,000 is required either on the main product keyword or a combination of different keyword sets is an appropriate number.

Jungle Scout is also a powerful tool, giving you important metrics such as the BSR (Best seller Ranking), number of reviews and revenue. BSR of 2-3 similar products should be 5,000 or less. The sales volume of the product should be high but not completely monopolized by specific sellers.

Source: merchantwords.com

c. Uniqueness of your private label products

Is there a similar product to yours being sold on the market? Go and check it for it both online and offline: in your local supermarkets, discount stores, shopping malls, Amazon and ebay.

Is there any way you can add a sense of uniqueness to your product? Check both negative and positive product reviews of your competitors (Top 50-100 best sellers) on Amazon. Why? That gives you an idea what the strengths and weaknesses of your competitors are, and you can counteract them in your product. You fill in the gap by turning their weakness into your strength. That also gives you an idea what new features you can add to your product, how you can differentiate your products from your competitors?

Source: amazon.com

Source: amazon.com

3. In which country should be your private label product made

Do you have Made in China as your first choice?–It is a popular option for a reason. Chinese exports to the account for a total of 2.1 trillion USD globally in 2016. China is an industrial powerhouse and a major international player.

Source: worldstopexports.com

The primary benefit of sourcing from China is that it is cheaper—much cheaper; and, this is why the region is so popular for private label manufacturers. Chinese factories are eager and willing to deal with smaller businesses with minimum order quantity as low as 10 or 20 pieces.

Sourcing from China comes along with a number of downsides though. The first is that there is a regional barrier, barred by language, culture and communication issues. This makes it urgently important to make everything as clear as possible when dealing with Chinese private label manufacturers. There is just so much room for miscommunication, which could be very costly to a starting business. Many have found this out the hard way when the finished product is delivered as something far different from what they originally described.

Another disadvantage is that the region is not as politically or economically stable. In one year, the Chinese government actually mandated the prices that can be raised by factories. As an outsider to the country’s laws and business practices, these governmental changes can definitely play a role in the unpredictability of manufactures and marketing. So, be sure to keep these things in careful consideration.

Any other replacement for China sourcing? What about Bangladesh, Vietnam, Thailand, India, Pakistan origins….suggestions:

Bangladesh, Cambodia, India can be replacements for textile product sourcing in China

Thailand, Vietnam and Malaysia can be considered as origins for sourcing snack food like chips, dried fruits, nuts…

Vietnam, Thailand and India can be also good origins for sourcing tableware, garden and home decoration items.

4. What to check for with private label manufacturers

After finding the right product, check the list of points that you need to communicate or negotiate with the manufacturers. Do not expect that the manufacturers can give you all the information you want. It is better for you to do your own research first and then come up with a list of things you want guaranteed. Later when dealing with the private label manufactures ask them if they can provide these requirements. This helps you doubly, as it will give off an aura of professionalism while giving you the reassurance that your product is well taken care of.

a. Order quantity:

How many pieces are you are going to start with for your first order? 500 or 1,000 units are best for negotiation with private label manufacturers. Some manufacturers accept 100 to 300 pieces. If you are unsure, just ask for the minimum order quantity directly or the quotes from several manufacturers (300, 500, 1,000 units are some common starting points).

b. Pricing:

Usually overseas private label manufacturers quote you the price on FOB (Free on board) term. If you want them to deliver directly to your warehouse, it is best to provide them the delivery address plus the delivery mode (by ship and by air) when asking for the quote.

c. List of product specification:

You do not need to explain the item in detailed format. It’s best to give an idea of what you want as the final product.

What design or features or functions you prefer?

Any particular material you want to make the product from (cotton, plastic, metal, ceramic, polyester etc…)

For product weight (in kg) and dimension (in cm), if it’s hard for you to have an idea, perhaps ask the private label manufacturers directly by saying, if you have the product I request, could you please tell me the product size and weight?

d. Intellectual property right:

Is any license needed for the design or functions of parts of the component of the product you want? Is it already a patented product?

Most of the time, the private label manufacturers are just responsible for the product production, if they say they can produce the item you want, check if there are any issues about intellectual property right in your target market. The manufacturers may not be aware of it or even worse simply ignore the issue.

If anything goes wrong with the product or you received any complaints from a client or any other party, it’ll be your problem because the product is under your own private label.

e. Labeling and packaging requirements:

First you need to ask the private label manufacturers if they allow customized labeling and packaging.

If you don’t have a clear idea of your label and packaging requirement, ask the private label manufacturers if they have any kinds of labeling and packaging options for the product you request.

f. Product compliance:

It is important to be aware of the product certification that is required for the products you are selling. There are different agencies such as the FDA and the IEC and you must conform to the regulatory standards or you will be left to face the consequences. You can check with the manufacturers to see if they have any product testing reports available.

It is also a good idea to check to see if the private label manufacturers also export to the country where the product is to be sold. Check and see if anti-dumping tax will be imposed in your destination. Get as much information as you can and make sure your product fulfills all the necessary requirements.

g. Product sample:

There are a few things to bear in mind when analyzing product samples.

It is always better to have two or three samples to check before placing an order.

Do not ask for free samples the first time, but instead inquire as to how much it would cost to have three samples shipped by air. After hearing this some private label manufacturers may actually offer you free samples (you will still need to pay sample delivery fee).

Remember to ask how long it will take to receive the samples from the manufacturers, and if the sample fee can be deducted from the mass order.

h. Other questions to ask the private label manufacturers:

What’s the leadtime for the mass production? 4 weeks? 10 weeks?

Have your factories already conducted any social audits, for example, BSCI? A social audit is an internal examination of how a particular business is affecting a society. Although a social audit is completely voluntary, it’s not an absolute requirement in choosing your private label manufacturer, by collaborating with private label manufacturers who is not only able to deliver products of good quality but also meet desirable environmental and social standards expected by general public, it definitely helps create a positive public relation image for your enterprise.

5. Where to find your private label manufacturers

a. Manufacturer directories:

Benefits:

Convenience. The most obvious benefit of these directories is that the work has been done for you already. The private label manufacturers are, in a sense, vetted beforehand. So, you can simply look at the pros and cons of each private label manufacturer and decide which is the right fit for you. Some private label manufacturers are a better fit for different types of businesses, and you can use these directories to find out which one is right for you. It cuts down on the risk of finding a completely new private label manufacturer.

Hugh network.Directories such as Alibaba and Thomas.net can be categorized as a form of collective entrepreneurship between the company and the thousands of merchants who join the network. The larger the network, the better for each individual merchant and the larger the volume of customers. These directories provide the platform and the merchants provide the products.

Risks:

Verified manufacturers. How do you verify the suppliers on the directories are qualified and reliable? Many of the so-called verified or gold suppliers on Alibaba are simply trading companies, not private label manufacturers. A strict due diligence must be performed on your own before placing any large orders. Rick Frasch covered it well in his post about 8 common mistakes U.S. companies make when looking for private label manufacturers in China on Forbes.com.

Language barriers. If you only speak one language – such as English – then it’s possible that some language barriers could slow down the process or create confusion along the way, especially in Asia, China, Bangladesh, Vietnam, Thailand. Keep in mind that only a minority of the private label manufacturers in these countries are able to communicate in fluent English. Many of them use online translators after receiving your inquiry emails. Draft your emails in simple English and try to avoid using professional terminology to make the manufacturer comprehend your needs easily.

Your lack of credibility. As an individual or small company with no preexisting relationships, you may not have the credibility needed to negotiate the lowest prices with the private label manufacturers, get small order quantities, or receive on-time delivery. This can be frustrating and hard to overcome. If you are unable to get small quantities of a product, it often leads to risky investments in larger orders.

And, if you are using a private label manufacturer that also works with larger retailers and proven brands, you are more likely to get pushed to the “back burner”. Since your small orders are much less cost effective, the factory will rush orders for giant retailers before they’ll ever touch yours. This can be very inconvenient when you’re trying to get an order completed and shipped on time.

Time constraints. It takes a lot of time to vet factories, verify quality, and negotiate orders. Furthermore, if you’re in another time zone – such as the United States or Europe – your business hours may be quite different from an overseas manufacturer.

Remember, time is money. It could take weeks – even months – to find private label manufacturers on your own. This can kill your chances of coming to market in a timely manner and may ultimately give the competition an advantage.

Fraud. While there are still honest private label manufacturers on manufacturer directories, you should always be aware that fraud is prevalent. For example, manufacturers in China where there was a wave of factory shutdowns just in 2015, aren’t always the most stable. They change names, switch addresses, and it can be impossible to trace them.

Not in the list. The reality is that not all qualified private label manufacturers choose to list themselves in B2B sourcing platforms or directories. Some feel that they have been flooded with inexperienced buyers who are not looking for long-term business relationship.

b. Quora and reddit:

Post a question on these forums, many private labeling experts would love to give you some tips; but for sure, everyone can answer your questions. Please be prepared to sift out the ones who only advertise their companies.

Benefits:

Expert input. You can have access to knowledge almost instantly. People on such sites are eager to help and do not want anything in return.

It’s free. There are experts on such sites including CEO’s, scientists, millionaires and others who are not charging anything for their responses or their time, despite their extensive experience. Not only is it free but you also get insights from multiple people who are debating the topic in the comments. There are expert US private label manufacturers on these sites as well as merchants and Chinese manufacturers.

Risks:

You have to decide for yourself what is expert knowledge and what is not. The person may not even be an expert despite what they have on their profile which can be a risk. You have no real way of verifying.

Even though the person may be an expert they have no real inside knowledge into your particular business model. While the information may be free and from an expert it is always to be taken with a grain of salt. They have no “skin in the game”. Also, there may not be any form of consensus between various experts which can throw you off track.

c. Sourcing agents

A sourcing agent essentially helps a business cut down on costs of all kinds in order to make the business as a whole more efficient and cheaper while taking quality into account. There are always cheaper and better ways to do things and sourcing agents are experts at finding the best manufacturers at the lowest prices. A good sourcing agent can be incredibly valuable to a company. And a bad one can be very costly and a complete waste of time with bad and often expensive advice.

Benefits:

Bargaining Power. They have their own manufacturer network and strong relationships with their manufacturers. And since they are constantly placing large orders with them, they’re able to negotiate far lower prices and smaller order quantities than you would be able to obtain on your own. Whereas, private label manufacturers may publicly advertise a MOQ (minimum order quantity) of 1,000 units, they may know that the factories are actually willing to do 250+ units.

Time-Saving. The biggest benefit is that it saves you time. We are not talking about days or weeks, but months. Sophisticated product sourcing process is complicated. A good sourcing agent will handle everything from supplier identification and verification to negotiations, payment, and delivery. You don’t necessarily ever have to communicate with the manufacturer, which makes the entire process smoother on your end. They know which manufacturer best suits your business, and how to get the product delivered on-time. If the manufacturer they found for you goes out of business all of a sudden, your sourcing agent can find you a replacement immediately.

Account manager. The sourcing agent will assign an account manager to handle your order from the beginning till the shipment. They usually hire people who are native or at least fluent in speaking your mother tongue as the key account managers because customer satisfaction is one of their key factors for them to survive in the industry.

Risks:

Cost. Sourcing agents are not cheap. They can take probably 6-15% of your total order along with the manufacturer as service fees. The commission fees vary greatly from agent to agent. There is also the cost of finding/screening a sourcing agent. There is a minimum charge for each order. It is illogical to pay a sourcing agent more than the total amount of your entire order.

Disaster Potential. As previously stated sourcing agents are not cheap. But they are outrageously expensive when they are an outright liability. Because not only will you be paying them a fee, but if they are making bad decisions which are actively costing you money it is a double blow. The factories they selected might not be appropriate and there might be crucial elements missed in their selection which costs your business a lot of money in the long run.

Extra Work. Finding a good sourcing agent seems can often be as much work as finding a manufacturer. Due diligence has to be performed in order to find an appropriate fit, and even then, it can be a risk. Unless you feel that your business really would benefit, it is easier to simply find a manufacturer yourself and keep your much-needed profits besides hiring a third party. They are useful and worth it only in certain instances. Choose carefully.

Privacy. Sourcing agents usually prefer not to disclose information about their manufacturers. Because this would essentially mean that you could deal with the manufacturer directly and it would cut them out.

d. Buying offices of the worldwide retailers

Usually these companies use the name of their parent company and put the word “Sourcing” as their trade name. It’s not hard to spot them out on google. For example, Casino global sourcing is the sourcing division of Groupe Casino (or Casino Guichard-Perrachon), Coop global sourcing is the buying office of COOP (Italy), Tesco international sourcing is the sourcing operation of Tesco. Take a look at top 250 worldwide retailer ranking for a hint. Check which ones also have their private label products in stores, which means they must work closely with private label manufacturers.

Source: Top 250 global retailers – Deloitte, 2016

Benefits:

Sourcing network. These are the same as the sourcing agents in nature, but compared to the medium sized sourcing agents, they have even developed a more rigid and stronger manufacturer network across the globe. They work with at least several hundred or even several thousand vetted and are audited manufacturers every year. They have multiple sourcing offices around the world employing the local people to handle orders. They are like a gateway to access a network of audited manufacturer network.

Sourcing volume. You can imagine how much they have to source every year by looking at the revenue figures of their groups. With or without your orders, they are still doing the same for the banners of their parent companies across the globe.

Strict manufacturer vetting. A buying office of a top global retailer leaves no stone unturned. They have their own quality teams that inspect product quality before and after mass production. They visit factories in person and manually audit their capacities and the quality of their facilities. They vet, verify, and frequently review their manufacturers to ensure factories and facilities meet social compliance standards. This means they’re looking at fire safety, child labor, working conditions, sustainability, and the various management systems in place at the factory. They have to do it because the reputation of their parent companies will suffer if there is any recall.

Account manager. They have merchandising departments which handle orders of different categories. If they take your order, it will be handled by an account manager or a merchandiser from the beginning till the shipment. Sure, there will not be any language issues. Most of them hire local people but also require them speaking English fluently as English is an international language which is often spoken in multinational companies.

Transparency. Some buying offices allow you an option to meet the manufacturers in person and even arrange a factory visit with you including visa application, accommodation arrangement. With the accompaniment of their merchandisers, it gives you an opportunity to learn the sophisticated procurement process and get familiar with the manufacturing process. Try several orders with them until you feel confident in dealing with the manufacturers on your own.

Risks:

Cost. While the buying offices of major retailers are excellent at what they do the fact of the matter is that they are not cheap. The fee is probably similar to what you would pay for a sourcing agent. Like the sourcing agents the commission rate will vary from one to the other with a minimum charge for each order. Again, you have to decide whether the cost is worth it while taking your personal business into account.

Availability of Sourcing Services. Keep in mind that not every buying office provides sourcing services for clients who do not belong to their group. You need to find them out and check with them if they can take care of your orders.

e. Google

Searching for private label manufacturers and product on Google is as simple as ABC. You will get an instant result and the more specific the better. Here are three most useful Google search tricks:

Use quotes (“ ”) to search for an exact phrase

Use an asterisk (*) within quotes to specify variable words

Use the minus sign (-) to eliminate results containing certain words

Benefits:

Quick and easy result. After you keyed in a query on search bar, a large selection of private label manufacturers will be available for you to choose. Can drill down further when you get into a private label manufacturer and optimize your search. The amount of accuracy of the data is as good as your personal analytical and research skills. Google can be an effective tool for information if used properly and the information gathered is analyzed correctly.

Risks:

The information gathered through search engines can be misinterpreted and the data found may not be accurate enough. Information gained through Google may not be as effective as information gained though more specialized sources which might not be open to public. Also, it can be quite slow to do manually and you may not have the time. Scraping tools which gathers data from different sites and give alerts on price changes for different private label manufacturers may be a better option.

There are always things to learn and ways to optimize a private label manufacturing business. These are the main points to consider before searching for your private label manufacturers. How you find your private label manufacturers? Share with us, we’d love to hear about your experience!

Sarah Kaiser is a digital marketing manager at Casino Global Sourcing, the sourcing division of a French retailer Groupe Casino. Godirek.com is the product catalog of Casino Global Sourcing, which offers helps and tips from product sourcing, cost saving to sales boosting for Amazon third party sellers . She’s a fan of water sports and has studied business management in France. Her works have been published on dozens of websites and blogs.